A Hard 'No' on Spirit Airlines Amid Frontier Merger Talks
Spirit Airlines is up big overnight but there's nothing wrong with sitting on your hands.
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Up 27% Overnight
Spirit Airlines SAVE is up huge in percentage terms (we're talking about half a buck or so per share) overnight after a Wall Street Journal report circulated on Wall Street that the beleaguered discount airline had been back in early-stage merger talks with fellow discount airline Frontier Group ULCC.
SAVE is now trading above $2, while ULCC is 6% itself, trading above $7. Party on, dudes.
Run to the Hills
Sounds Familiar?
If that possible pairing in particular sounds familiar, that's because you've heard it before. Frontier had agreed to acquire Spirit back in early 2022 for $2.9 billion in cash and stock, before JetBlue JBLU, which is another discount carrier trading above $7, won a bidding war for Spirit and Frontier back off. That deal was put to bed by a federal judge this past January as the deal was found to be anti-competitive. The shares of Spirit airlines traded as high as $16.85 in January 2024, and as low as $1.47 last week.
Buy Spirit Airlines for a Trade?
I get that. As long as the trader understands that the trade is purely speculative. Almost 33% of the entire float is held in short positions, so there could be some "giddy up" applied to the share price as that crowd gets nervous.
Invest in Spirit for the Long-Term?
See the above Iron Maiden lyrics. That's a hard "no" for me. Spirit is set to report on Friday. Wall Street is looking for a GAAP EPS of $-2.45 on revenue of $1.17 billion. That would compare to EPS of $-1.37 on revenue of $1.259 billion for the year-ago comparisons. All 12 sell-side analysts that I can find that follow SAVE have reduced their earnings estimates as the quarter progressed.
Additionally, as of June, the firm has generated operating cash flow of $-647.7 million over the past 12 months. The firm also ran with a cash position of $840 million and a total debt-load of $3.266 billion. The firm's current ratio stood at that time at 0.94.
Is Frontier better? Yes, the firm is losing a lot less money, ran a slightly positive operating cash flow for the past quarter and the balance sheet is a lot less awful. How about JBLU? Not much better.
I think Frontier, while still speculative, is the better investment choice of the three. That said, there's nothing wrong with sitting on one's hands sometimes (so one does not touch their keyboard).
At the time of publication, Guilfoyle had no positions in any securities mentioned.
